§ When it is proved to the Commissioners, on an application made for the purpose within the time fixed by this Section, that, upon any transfer on sale of the fee simple of any land, or of any interest in the land, or the grant of any lease of the land which took place within twenty years before the thirtieth day of April, nineteen hundred and nine, or within the lifetime of the person who is the owner of such land at the time of the application, whichever shall be the longer period, the value of the consideration for the transfer, in the case of a transfer on sale of the fee simple, or the value of the fee simple of the land, calculated on the basis of the value of the consideration for the transfer of the interest, or the grant of the lease, in the case of a transfer on sale of an interest in the land, or the grant of any lease of the land, exceeded the total value of the land as on the thirtieth day of April, nineteen hundred and nine, as ascertained in accordance with the provisions of the principal Act as to valuation, then the value of the consideration for the transfer on sale of the fee-simple, or the value of the fee simple, calculated on the basis of the value of the consideration for the transfer of the interest, as the case may be, shall be substituted for such total value as on the thirtieth day of April, nineteen hundred and nine, and the site value as on the thirtieth day of April, nineteen hundred and nine, shall be ascertained by deduction from the value so substituted for the total value.
§ This provision shall apply to a mortgage of the fee simple of the land, or any in- 1414 terest in land, in the same manner as it applies to a transfer, with the substitution of the principal amount secured by the mortgage for the consideration and the substitution of mortgagee for owner. An application for the purpose of this Section must be made in cases where the original site value has been finally settled under Part I. of the principal Act before the coming into force of this Act within three months after the coming into force of this Act, and where such original site value has not been finally settled before the coming into force of this Act within three months after the original site value has been so finally settled, and where the total value of the land on an occasion under Section 2 of the principal Act does not exceed the total value as ascertained under this Section, no Increment Value Duty shall be payable, and any Increment Value Duty which, except for the provisions of this Section, would have been payable under the principal Act shall be deemed to have been paid.
§ This Section shall take effect in substitution for Sub-section (3) of Section 2 of the principal Act.—[Viscount Helmsley.]
§ Motion made, and Question proposed, "That the Clause be read a second time."
§ Viscount HELMSLEY
No doubt there are points of similarity between this Clause and the new Government Clause. I want to submit that my Clause, with the Amendments necessary to bring it into conformity with the Clause already passed, would carry out in spirit and in letter the pledge which we understood we had received from the Government upon this point. A good deal has been said about that pledge, and I should like to read an extract which will show that what the Chancellor of the Exchequer meant was what is contained in my Clause, and not what is contained in the Government Clause. I will take what Mr. Wood said when the Chancellor of the Exchequer spoke to representatives of building societies, co-operators, and trade unionists; and if I read the whole extract the Solicitor-General will see, not only what the 1415 Chancellor of the Exchequer said, but also what he had in his mind:—In one ease the Chancellor had in part met the hardships by a twenty years' limit. He was referring to the case of a man who bought property, say twenty-five years ago, and the property might have shrunk very considerably in value at the present time; but ten or fifteen years hence if be sold, and in the meantime the value had improved, he would have to pay Increment Value Duty. The word 'increment' could only be justified if they disregarded the decrement which had previously taken place. It was provided that if the property were bought within twenty years, the purchase price should be taken as the present value. He suggested that if the value of property rose to the sum which was originally given for it——I repeat these words:—if the value of property rose to the sum which was originally given for it, the owner should not be liable to Increment Duty.Mr. Lloyd George: To what extent do you suggest?Mr. Wood: During the lifetime of the present owner. For instance, if a man twenty-five years ago, gave £2,0 0 for a property which had shrunk in value until to-day it was only worth £1,000 and which within ten years had appreciated again to 11,600 or £2,000, he would have to pay Increment Duty.Mr. Lloyd George said he would make a note of that point.That happens to be the same case mentioned by the hon. Gentleman the Member for Derby this afternoon.
§ Viscount HELMSLEY
From the paper, "Land Values." These are the very figures which were mentioned by the hon. Gentleman the Member for Derby. It is the same point which was in his mind, and in the mind of Mr. Wood. The property which had depreciated and then appreciated, but had not come up to its original value, should not have Increment Duty paid for it. I want to point out to the Solicitor-General more of what the Chancellor of the Exchequer said. This is a longer extract than the last one, because I do not think I made it clear earlier. The Chancellor of the Exchequer said:—The expert gentlemen who had attended before him that morning had made suggestions to facilitate the smooth working of the Act, all of which were in conformity with its spirit and would improve its workmanship. With reference to the point urged by Mr. Wood with regard to the twenty years' purchase, he would be happy to accept any Amendment, and he would consider whether a provision could not be drafted to alter it. It was clearly unfair that in a case such as had been mentioned——The House will remember that this is just the kind of case contemplated:—a man should have to pay increment on what was really no increment. He, of course, could not say what form such an Amendment would take, but they would find that the letter would not fall short of the spirit of the pledge.If the meaning of words is what they appear upon the face of them, then 1416 I submit that this is the only meaning of the words. And I think that the extract entirely does away with the defence of the Government that this Clause, which they have put down, carries out the meaning of the Chancellor's pledge. I think it is obvious that that pledge is not carried either in the spirit or in the letter. I do not wish to make any accusations of bad faith. I have no doubt that the matter is a misunderstanding. But there it is: the misunderstanding is there! The people who heard these words thought what I am saying now; that is, that this particular case of decrement should be met and at the same time any partial recovery should be met. Everybody who has read these words thinks, and it is apparent, that the Clause of the Government does not meet the case.
It only remains for me to show how my Clause does meet the case. It suggests, in the first place that the money for which the property was bought over twenty years ago, or the amount in the case of a mortgage which was advanced on mortgage, should be substituted as on 30th April, 1909, for the then value, as ascertained by the valuer, and that in order to arrive at the original site value you should then, on 30th April, 1909, make the deductions for the site value from the original price so given.
§ Viscount HELMSLEY
That is the total value. To make the deduction for the site value it is suggested, instead of making the ordinary deductions from the full site value as on 30th April, 1909, you should make these deductions from the total value as substituted, being the sum for which the property was bought, say, twenty years ago. It may be said to me: "That is all very well; but supposing there was a building on the property when it was bought, and that by 30th April, 1909, that building has been pulled down?"
§ Viscount HELMSLEY
Take the case of it being pulled down. There is no real increment to the owner because he, having pulled down the building, presumably has done nothing but what will improve the value of his property. The building was worthless. Otherwise the owner would not have pulled it down. Therefore, as a matter of fact, site value, as ascertained at that time, is the current 1417 site value having regard to what the man paid for it. If it is lower than the real site value of adjoining property valued as on 30th April, 1909, then all the same, there is no reason why increment should be payable. What I intend to convey is this: that there is no increase to the owner whatever. I put it this way. Although by this process site value at that time may be higher—if you like—than it is elsewhere around, that does not mean there is any increment, because it is only what the man gave for it originally.
§ Mr. NEILSON
Will the Noble Lord give a concrete instance, say a property of £1,000, with the various values, purchased twenty-five years ago?
§ Viscount HELMSLEY
Perhaps the hon. Gentleman had better reserve that case for his own speech. I will endeavour to make the point clear that if there is any increment to the owner, although presumably and apparently actual increment on the site value, that there is no increment to the owner. So much for that point. Then there is, in addition, the Clause about mortgages, which I think is very important, and which I do not see touched by the Government Clause, although various cases have been raised. There are words at the end of the Clause which really make the whole point very simple. May I call particular attention to these words:—
"Where the total value of the land on an occasion under Section 2 of the principal Act does not exceed the total value as ascertained under this Section, no Increment Value Duty shall be payable, and any Increment Value Duty which, except for the provisions of this Section, would have been payable under the principal Act shall be deemed to have been paid."
I think those words absolutely carry out what the Chancellor of the Exchequer led us to believe he intended to carry out. I do submit that the Government ought to accept them if they do not want to make people pay Increment Duty although as a matter of fact no increment has accrued. I do not want to elaborate the case any more. I think the House appreciates the point. Even if the buildings have depreciated, even if the site value has increased, and yet the total has not increased to the owner, and if the owner has lost on the whole transaction, I submit it was unfair for the State to say that any Increment Duty whatever is payable.
§ Mr. PRETYMAN
I desire to second my Noble Friend's Motion. The question has been very fully debated, and I quite accept the suggestion that it is not necessary to restate the case. The point I desire to emphasise is that the Chancellor of the Exchequer gave a definite pledge that in the case where property had been bought at a certain figure prior to the passing of this Act, and is valued at a lower figure at the time this Act was passed, and therefore stands at a lower figure than the purchase price originally, when that property rises again in value to a figure not exceeding the original purchase price paid for it, there should be no Increment Value Duty paid on that property. The Chancellor of the Exchequer said in that case you can go back twenty years, and if within twenty years a man had paid more than the present selling price, there is to be no increment. A most remarkable claim was put forward by the learned Attorney-General upon the Amendment which was passed early this afternoon when he said that Amendment was a fulfilment of that pledge. I think, if I may say so, that was a ridiculous suggestion, because it had nothing to do with the point at all. I am quite sure the Solicitor-General will not deny that. He will not deny that the Clause which has been carried does no more than leave the Act as it stood, with the exception of extending the period of twenty years to the lifetime of the present owner. Is not that a fact?
§ Mr. PRETYMAN
I hope the hon. and learned Gentleman will not try and talk round the point. I say that with the greatest humility and courtesy we want a straight answer, and I say that the Clause we have just passed does no more than extend the period of twenty years to the lifetime of the present owner where that will be a longer period than twenty years. It merely alters the period within which in certain cases this concession will operate. But it makes no alteration whatever in the concession itself, and this pledge which was given did not refer at all, and did not deal or mention the question of the period, whether it would be twenty years or the lifetime of the present owner. That was mentioned in another quotation made by my Noble Friend (Viscount Helmsley). In the quotation I rely upon, the sole question was whether where this had occurred, and where property when sold did not fetch a higher price than it originally cost when purchased before 1419 the Act was passed there should be no increment. The Clause moved by my Noble Friend does nothing but give effect to that pledge. All that this Clause does—and it has been carefully drafted, and will require but a few small Amendments to bring it into accord with the Clause already passed, and these Amendments can easily be made, and my Noble Friend has them ready—is merely to give effect to this pledge and to insure that in a case where the price obtained for the land is not greater than was originally paid for it there shall be no increment.
I see the hon. Member for Derby (Mr. J. H. Thomas) in his place. He was good enough to say that he considered, as the Chancellor of the Exchequer had considered, that in such cases there ought to be no increment and no duty. It is a perfectly plain point. No question of site value arises at all. It is the question of the price paid. The price paid and the site value are totally different questions. If the Chancellor of the Exchequer had said, "where the site value remained the same," it would be different; but what he said was "where the price paid remains the same," there is no increment. The new Clause is intended to give effect to that promise. I do not see how other than by giving the Clause of the Noble Lord a Second Reading and suggesting words to make it more clear, if necessary, it can be done, and I do hope the hon. Member for Derby and his Friends will adhere to the opinion he expressed that this Clause is in accordance with the pledge already given. I hope the Solicitor-General will see his way to announce the acceptance by the Government of this Clause, which is intended to carry out the pledge given by the Chancellor of the Exchequer.
§ Sir JOHN SIMON
I shall do my best to make my contribution to the discussion brief and businesslike. The first thing we have to do is to see what is the real effect intended to be produced by the Noble Lord's new Clause. It is necessary for me to put to the House what I understand to be the object of the Clause of the Noble Lord. In order to appreciate the object one has, of course, to bear in mind what the provisions of the law, as it stands at this moment, are. I ask the House to allow me to state what many Members here well know, namely, what is the method adopted in order to arrive at the original site value of a piece of land. Supposing that the land is not covered with houses, but is bare land, the problem is a 1420 simpler one than if the land is covered with houses. If you take a property consisting of houses and land, and if that property had a total value (which for these purposes means a commercial value as a whole) of such and such a figure on the 30th April, 1909, then, in order to arrive at the original site value, you have to deduct from that total value—the value for houses and land together—what I may call the superstructure value. I am trying to make this case plain. That is the method to be adopted. You find first of all what on the 30th of April, 1909, was the total value—that is the commercial value of the whole thing, house, land, and superstructure—and then you subtract the superstructure value, and what you have left is the original site value. In order to do that you take the total value, and you take the superstructure value at the same date. What the Noble Lord wants to do is to take the total value at some past date, and subtract the superstructure value at some later date. I agree that that is a most convenient arrangement for those who wish to escape paying this tax, but it is at variance with the whole principle which lies at the bottom of any assessment of the site value. The site value is always to be obtained by subtracting the superstructure value from the total value. It is true to say that in every case when you wish to arrive at the site value as it stands at any given moment, it is arrived at by subtracting from the total value at that moment the superstructure value at that moment. What does the Noble Lord seek to do? Practically he says, "I accept your formula that you have to subtract superstructure value from total value to arrive at site value, but I want to substitute a different and earlier total value."
§ Viscount HELMSLEY
My proposal does not allude to the general principle. It only refers to cases where the owner is actually getting no increment.
§ Sir JOHN SIMON
An hon. Member opposite was good enough to say that I said something to produce a fog, but in what I am now saying I am trying to make things clear. If I may give an illustration I will try to show what the effect will be. Suppose that on the 30th April, 1909, the total value of a property, that is the house and the sub-soil, is £1,500. The house was built, say, twenty years ago. What you have to do is to subtract from that £1,500 so much as represents the superstructure. 1421 I will assume that the superstructure value is £1,000. You subtract £1,000 from £1,500, and the site value of the soil at that date is £500. Supposing you went back twenty years in the history of that property. Twenty years ago, when this house was first built, the man who built it bought the site upon which he put the house. He paid then not £500 for the site, but £200 for it. He put upon it a house which was worth when it was put up not £1,000 but £1,500. The result would be that twenty years ago the total value was £1,700; and twenty years ago you would have had a total value of £1,700, of which £200 represented the value of the land and the other £1,500 the house; whereas on the 30th April, 1909, you had a total value of £1,500, the land having gone up to £500 and the house having gone down to £1,000.
§ 9.0 P.M.
§ Mr. PRETYMAN
I think I am right in suggesting that that Amendment would not touch the point at all, because all that would have been bought would have been the land, and all that would have been bought would be the site. The whole property must have been bought.
§ Sir JOHN SIMON
I am much obliged to the hon. and gallant Gentleman and he is quite right. He has put his point clearly and I am much obliged to him. I will not assume the case of the land being bought. Let me assume the case of a man coming in and buying the house and the land twenty years ago for £1,700. I will point out the effect of the Amendment. Twenty years ago the superstructure value was £1,500, and twenty years use or abuse has brought it down to £1,000. It may be that part of it has been pulled down or burned down, or that it has not been kept in a state of repair, or else its value in some other way has gone down. But whatever the reason, the value of the house has gone down. The value of the land, however, on which it stands, has gone up, and whereas you had the superstructure value at £1,500 twenty years ago upon a site worth £200, making a total of £1,700, today you have a house of the value of £1,000 standing upon a site worth £500, with a total value of £1,500. Our object being to find out the site value of land in 1909, we take the total value in 1909 which was £1,500, and subtract the value of 1909, which was £1,000, and we have got left £500. What the Noble Lord wants to do is to keep for the purpose of subtraction the big superstructure value, but the thing to subtract from is not the total value 1422 of the same date, but the total value twenty years before. Supposing twenty years age this house and land here was bought for £1,700, and suppose that just before the Budget comes into force the whole house is burned to the ground. In that case the total value when the Budget comes into force is the same as the value of the site without any superstructure. We are asked under this Amendment to subtract from the total value of the site the value of a superstructure which existed twenty years ago at the price and value it was twenty years ago.
§ Viscount HELMSLEY
I think the Solicitor-General is putting it the other way about. I suggest that you should subtract to get the datum line what is actually there. In the case the hon. and learned Gentleman has just cited you would subtract only the charred bricks.
§ Sir JOHN SIMON
Again the Noble Lord is quite right. What he would seek to do is to take the total value not in 1909, but in 1889, and he would wish to substract from it the charred bricks. The question is what is the proper way in which to arrive at that site value which has to be put into the valuation. The Budget concedes that you may, under certain circumstances substitute an earlier silo value for the site value of 1909, but, to subtract from the total value of thirty years ago a thing which at this moment may be nothing is to substitute something which is neither fish, flesh, fowl, nor good red herring. [HON. MEMBERS: "Chair, chair."] This is a little complicated, and I was anxious to make the matter clear, and I apologise to the House. The principle on which all these site values is based is that before a subtraction of one figure from another figure is made you should see that both figures refer to the same date. If this Amendment is adopted the result will be that a man who had acquired a palace before the Budget came into force for a quarter of a million of money and who pulled down the palace would actually be able to claim the original site value as a quarter of a million, because it would be the total sum paid, less nothing which is upon the site. If you take everything off the site, there is nothing. Let me say a word about the hon. Gentleman who was referred to just now. I can quite understand he may take a view adverse to the Government view if he really supposes we are doing something quite different from that which we 1423 are doing. If a man gave for bare landed property a price before the Budget came into force, and when the Budget came into force he is asked to accept a site value lower than that price, then you are doing him an injustice, not because the house has depreciated—you have no house but because the land which he acquired as bare land was acquired before the Budget came into force at a larger figure than the figure put down when the original site value was ascertained. That case is provided for by the Budget as it stands.
The case I put is one where there is no house upon the land, where it was bought twenty years ago at £1,700, and where it had gone down to £1,500 assessable site value when the Budget was passed. Our law provides for that case, and there is no Increment Value Duty to pay until there has been a rise up to the price that was paid. It is only by some unintentional confusion between those two classes of case that this difficulty has arisen. The word "property" is not improperly used if you apply it to land with a house upon it, but many hon. Gentlemen use it to mean land as distinguished from the buildings upon it. I do not think if this question is approached candidly there can be very much doubt about the sense in which the word "property" was used at his much discussed and quoted interview. I notice that some of the words the Noble Lord read were only consistent with the case put being the case of purchase of a piece of land which afterwards had gone down in value. I do not think the Noble Lord would dispute that that case is provided for under the Budget. Here is the very passage the Noble Lord put to the House, and I notice that Mr. Wood said he was referring to the case of a man who had bought property twenty-five years ago. The question is what he meant by "property." The Noble Lord thinks he was referring to house property. I go on only two sentences further, and I find this statement made by Mr. Wood:—It was provided that, if the property were bought within twenty years, the purchase price should he taken as the present value.Where is that provided in the Act. It is provided for in the Budget if property means the land without buildings upon it. It is not provided for if it means land with buildings upon it.
§ Sir J. SIMON
The Noble Lord asks for a straight answer, and I am anxious to 1424 give a straight answer. He was referring to the case of a man who bought property twenty-five years ago which, as the House knows, would not be within our extension:—It was provided, if the property was bought within twenty years, the purchase price should be taken as the present value.That is true if by "property" you mean what I believe Mr. Wood meant. He suggested that, if the value of the property rose to the sum which was originally given for it, the owner should not be liable to Increment Value Duty.Mr. Lloyd George: What extension do you suggest?Mr. Lloyd George meant, "Do you not think twenty years enough? How much more do you want?" That was a perfectly irrelevant question if the Noble Lord is right in his construction; but Mr. Wood, so far from thinking the Chancellor of the Exchequer was talking about house property immediately replied:—During the lifetime of the present owner.Mr. Lloyd George went on to say he had had this suggestion made for the extension of time and he would consider it and see what could be done. I do not attribute to hon. Gentlemen opposite any want of complete good faith in the use they have made of this quotation, but I wish hon. Gentlemen who have spent so much time in talking about broken pledges would show some willingness to believe that hon. Gentlemen here do not break pledges deliberately. So far as I am able to understand that language, Mr. Wood was dealing with the case of property in the sense of landed property as distinguished from property with houses upon it. He said himself there was a provision in the Budget to provide for cases going back not more than twenty years, and he asked for a further extension. That is only consistent with his talking about land which has not a house upon it. I am sorry to have occupied the time of the House so long. My object in the matter is nothing more than to make a necessarily complicated matter as plain as I can, and I submit that the proposal made by the Noble Lord cannot reasonably be accepted.
§ Mr. CATOR
I will ask the House to listen for a few moments to what I would put as a concrete example showing that there is a real hardship at the present time in the case of composite property. In the year 1899 a man spent £500 in the purchase of a piece of land, and £1,000 in building upon it, giving a total of £1,500. The house and land let together for £60. 1425 If you take that at twenty years' purchase you get a sum of £1,200. Thus, although the man has spent £1,500, the total value for valuation purposes is but £1,200. The site value is £400, and if you deduct that from the total value you get £800. Under the Act the owner has power to substitute the price given within twenty years for the land—£500. In 1911 he sells the property for £1,400, yet, in spite of having suffered a loss of £100 on the property, when it comes to assessing it for increment, the transaction actually is as follows:—The property was transferred for £1,400. Deducting the difference between the site value and the total value you get the figure of £800, and you arrive at a site value on the occasion, not of £500, but of £600. Although there is a loss of £100 on the property, he has to pay on £100 more increment value. Of course, you are allowed 10 per cent. on the £500, and you deduct £50 from the £100, but even then, if you take one-fifth you will find that the man will have to pay £10 Increment Duty, although he has lost £100 on the transaction. Does the right hon. Gentleman consider that a fair and just arrangement?
§ Mr. CHARLES ROBERTS
There are two questions arising. The first is as to the Clause on its merits. I do not think it is necessary to deal with that after the extremely lucid and clear explanation given by the learned Solicitor-General. But there is also the question, which has been pressed home by the Noble Lord the Member for Thirsk, as to whether there was, in the interview to which reference has been made, a definite pledge on the part of the Chancellor of the Exchequer. I think I can throw some light upon that. Mr. Wood, whose name has been frequently quoted is the president of the Building Societies Association, of which I happen to be a vice-president. I have been in close and constant communication with him in reference to the Amendment of Clause 2, Sub-section (3) of the Finance Act. As a matter of fact, I had an Amendment on the Paper in Committee (which suffered the lot of a good many other Amendments) which represented what the Building Societies Association asked for. That new Clause did agree with the Clause of the Noble Lord the Member for Thirsk in that it required the substitution of total interest for site value in a very limited point. It limited that to the question of mortgagees who had effected their mortgages prior to the date of the provisional valuation. But I know from my discus- 1426 sions with Mr. Wood on this point that he did not claim there was any pledge given to him in that interview in favour of that Clause. He did, however, claim that the Clause which has already been conceded by the Government, and which has been passed to-day, was in fulfilment of the pledge given by the Chancellor of the Exchequer at that interview. That was a reasonable and substantial concession for which we may be grateful.
But in reference to the point now put forward, I am in a position to say that there is no claim that that represents any pledge given by the Chancellor of the Exchequer. It is put on an entirely different basis. The Building Societies Association are asking for a much more limited Amendment to Clause 2, Sub-section (3), and I should like to make it perfectly clear that they do not ask it in virtue of any supposed pledge given at that interview, they are asking for it on its merits. I am afraid it would not be in order for me to go into the point of what they are asking for, but briefly what we wish the Government to concede is an arrangement which would suit the convenience of building societies. It is not that the Building Societies Association objects to the principle of the tax on its merits; they are asking for a change of administrative detail which would, in their opinion, save them an immense deal of labour in applying for copies of provisional valuations and in checking those provisional valuations with the mortgages which they have made on working-class houses. It would also save the Government Department a very considerable amount of trouble. But it would be out of order to discuss that now. I hope there may be another opportunity when the Finance Bill comes on, and when the Government may have more leisure to consider it. I should like, however, most definitely to say that this new Clause, even in its most limited form, is not being asked for on the ground that there was any pledge. I am quite certain that there was not, in the minds of those who were present at the interview, any such idea, and I am equally certain that all the attacks that have been made for the last two hours upon the Government on that ground are beside the mark and entirely without foundation.
§ Mr. BOYTON
The learned Solicitor-General threw such a glamour and charm upon this dry-as-dust subject that it is rather difficult to cross swords with him. I want particularly to refer to Mr. Wood, 1427 who was a member of the deputation of building society representatives, friendly society representatives, and, I think, trades union society, which waited on the Chancellor of the Exchequer. As I understood the Solicitor-General, Mr. Wood was not arguing from the point of view of the householder, he was rather arguing from the point of view of the landowner. It was only this afternoon I had in my hand a report of what took place at that deputation, and there, if my memory serves me rightly, and I am speaking subject to correction, Mr. Wood, it is stated, said that he represented a very large building society—I think it is called the Temperance Building Society—and they did not hold a single security in land. All their securities were in houses: their advances being upon houses. How, therefore, the learned Solicitor-General comes to the conclusion that Mr. Wood, as a well-known representative and mouthpiece of building societies, could be held to be only talking of land I am at a loss to understand. I would not have risen, except to remind the Solicitor-General that he is quite wrong about what took place at the interview but for the fact that I have been asked by numerous managers of building and friendly societies to support the Amendment of my hon. Friend. According to the hon. Gentleman who spoke last, Mr. Wood and the members of his committee and directors have altered their views, but generally throughout the country the representatives of the building societies have not altered their views, although Mr. Wood and others may have done so. They are just as anxious about the Finance Act as ever they were, and, owing to the depreciation of their securities, they are more anxious than ever they were, and gradually the truth is becoming known throughout the land.
§ Mr. DEPUTY-SPEAKER
The hon. Member is speaking upon the Clause much too generally in what he is saying.
§ Mr. BOYTON
I am sorry, and I will confine myself to advocating the Amendment which is before the House. It is supported, notwithstanding what hon. Members have said, notwithstanding what Mr. Wood is represented to say now, and what the hon. and learned Solicitor-General said—it is supported by building societies and friendly societies throughout the land and all parties interested in small property. I venture to hope that even at the eleventh hour the Government, 1428 in the person of the Solicitor-General, who is in charge of this Clause, will see their way to accept the Amendment.
§ Mr. J. H. THOMAS
When I intervened in the Debate at an earlier period I was not in the least interested as to what the Chancellor of the Exchequer had promised or not. I was not in the least concerned as to what took place at any particular interview, but I did carefully follow the Debate from both sides, and tried to appreciate what the real effects of the Amendment would be if it was carried, and I must confess that the Noble Lord, when he moved the Amendment, was most careful this afternoon to exclude from the whole of his lengthy speech what he said this evening in the concluding sentence of his statement. Had he said this afternoon what he said this evening then I certainly should not only have clearly understood the position, but would have given no countenance to the Amendment. He said in the last sentence this evening that he claimed whether there was an increase in the value of land or not an exemption from Increment Duty. That was the concluding sentence of his speech this evening. Nothing of that sort was stated this afternoon. What I had in my mind was a very clear case in regard to my own organisation, which bought a block of buildings for £18,000, pulled a number of houses down, and erected a building costing £30,000. For the purposes of argument let us say that the whole building was worth £50,000. Supposing a fire took place, and the whole structure was burnt to the ground and we were not desirous of building another set of offices at that particular place and on that site, and we sold the land for £28,000, or £10,000 more than the price originally paid. Although that would be less than the total cost of the building put up—namely, £50,000—obviously in that case We ought to pay Increment Duty, and what I wanted to make clear was that under those circumstances I was in favour of the lax. But, on the other hand, supposing a valuation took place of the land and buildings ten years ago, and supposing the valuation in 1900 showed £10,000 less than we paid for it, and then in two years' time we sold it for £3,000 more than that valuation, obviously, under those circumstances, we ought, I think, to claim exemption. I think that fairly bears on the point I made this afternoon. We frankly do not view this or any other question from the standpoint of party. I myself try not to think of it in 1429 that light, but I try to see whether it will benefit the class I represent, and it is quite an indifferent consideration to me which party it is that introduces it. It was with a view to explain this that I intervened.
§ Mr. CASSEL
I only intervene for a very few minutes, and I wish to say that I think that the hon. Member for Derby (Mr. J. Thomas) who spoke last made his point very fairly. The question comes tack to this, and let us leave aside for a few moments the points which are raised in regard to this particular amendment as to the way in which is is drafted. Let me put this question to the Solicitor-General plainly and frankly, and ask him if a man can prove to the satisfaction of the Commissioners that he has made an actual loss on the transaction will the Government insist on exacting Increment Duty upon the property. If a man can prove having regard to the purchase price for which he bought and proves to the satisfaction of the Commissioners that on the sale he has made a substantial loss will the Solicitor-General say that either under the Act as it stands, or under any amendment, that man will be exempt: from Increment Duty. Let us leave aside all these words, I because anybody who listened to the Chancellor of the Exchequer as a layman would have understood the meaning of what he said, and he would have gathered that the Chancellor of the Exchequer meant that when a man could prove to the satisfaction of the Commissioners or any impartial tribunal that he had made a loss upon the transaction he should not have to pay one-fifth of the supposed profit. I shall be satisfied if the Solicitor-General or Attorney-General would make two statements, and the first is that under the Act as it stands a man would not be subject to a duty if he could prove to the satisfaction of any reasonable man that he had suffered loss. My own construction is that he would be liable, but I advance any view as to the interpretation of this Act with the greatest hesitation. If the Solicitor-General or Attorney-General will state another interpretation of the Act, and say that a man who can prove that by reason of a purchase made before this Act came into force he has actually sustained a loss on the transaction he will be exempt, I shall be satisfied. I should also be satisfied if the Attorney-General or the Solicitor-General would afterwards issue instructions to the valuers to give effect to that view. It is not my view of the Act. 1430 If on the other hand the Solicitor-General and the Attorney-General agree with me that a man is liable for this duty although he has suffered a loss, the least he can do is to propose a new Clause which will give effect to the pledge of the Chancellor of the Exchequer as I think it would have been understood by any ordinary man.
§ Dr. CHAPPLE
The speech that the hon. Member has just made throws a little light upon a rather complicated question. It is not a matter whether a man gains a profit or not in the use of land. A man may lose in dealing with land by putting up a wholly unsuitable building, or he may put up a building on an insecure foundation. He might do anything in the use of land which will lead to a loss, just as he might do anything in his business which might lead to a loss there, and the valuers could not take that into consideration. The question is whether the land has increased in value. Nearly all the hon. Gentlemen who have spoken on the other side have confused the word "profit" with the word "increment." We have what we know as exhausted improvements. A man may make a drain, and it may prove in twelve months that it is useless for the purpose for which it was intended. Is a man to have that taken into account in estimating improvements? Obviously it is not an improvement at all. The Attorney-General referred to these improvements as super structures. I am inclined to think that is a misleading word, because it assumes that every improvement you place on land is a house or building. Other expenditures of money, such as making dykes and drains, may improve and greatly enhance the value of land, and the owner of land will be entitled to have a deduction made for these improvements. But these improvements might exhaust themselves. A house will wear out and become useless. A drain will cease to be operative at all. Other conditions may have come into operation which have entirely wiped out all the amount of money which has been expended. The question then is not whether a man has made a profit or a loss, but whether the land has increased in value or not.
It has been assumed by nearly every speaker that the value of land is what a man pays for it. A man might pay far less or more than it is worth. The real value of land is what you can get out of it by its best use, and in valuing land you must take into consideration, not what a man is getting out of it as annual revenue, 1431 but what can be got out of it by its best use. You can go into the market to-morrow and buy a bit of land at half its value because a leading article appears in "The Times" saying that the taxation of land values was going to ruin agriculture. On the other hand a man might come along and pay a fictitious price for land. He might be an American millionaire who wants a particular site for a particular sentimental reason. The value of the land can only be ascertained by examination of what is its best use. I think so much confusion arises because people attach different values to different terms. It has been assumed on the other side that building land is land carrying buildings. Land carrying buildings might be agricultural land. Building land is land that is capable of carrying buildings as its best and most profitable use. I have seen in Scotland agricultural land carrying buildings because the land upon which the buildings were erected could only be used profitably when turned to agriculture. They were deserted buildings. The people had been driven out by the iniquitous landlords there, and these buildings now are not suitable for the purpose for which they were erected. The only way to use the land would be to pull the buildings down and grow grain.
§ Mr. DEPUTY-SPEAKER
What the hon. Member is saying is interesting, but I really do not see the precise connection with the Clause.
§ Dr. CHAPPLE
I was trying to meet the arguments which have been made by several hon. Gentlemen that unless a profit were made land would not be liable to Increment Duty. I am endeavouring to show that if you take as the value of land what a man paid for it and not what the land is capable of producing by its best use, you get misled entirely. I maintain that you can only arrive at this particular value by ascertaining to what use that land can be put in order to produce a maximum revenue, and if you capitalise that revenue you get at the value of the land. Such improvements as I have mentioned might be exhausted improvements, and would not be entitled to be deducted when arriving at the value for increment purposes. If a house has ceased to be saleable or to be useful as a house, it has no value; and, therefore, ought not to be deducted in arriving at the site value. I think in estimating this increment the valuer should not take into consideration whether a man 1432 has gained by his transaction over these twenty years, for he might have converted a large area of land into a lake or into pleasure land. It is useful for no other purpose, and it is not useful for revenue purposes. In valuing that land are you going to take into consideration what the owner has spent on it? Certainly not. You make no deduction for any improvements which are not useful and are not serving a revenue purpose. Therefore a man may have bought land twenty years ago, and may have used it or abused it, and spent an enormous amount of money on it, and now sell it for less than he originally paid, and yet be liable for Increment Duty, because he sells it at such a price as not to recoup all that he has spent upon it in the interval. That is not the issue. The issue is whether it has risen in value.
§ Mr. BUTCHER
The hon. Gentleman opposite (Dr. Chapple) has spoken with the greatest candour on this subject, because the principle he has laid down is that he wishes to tax a man although he has made a loss; he wishes to tax him as though he had made a profit. When an owner deals with land, and the result of the transaction means a loss to him, the hon. Gentleman says, "Oh, it is quite right to tax him because he has not made the best use of the land." That principle is not only flagrantly unjust, but it appears to be the principle on which the policy of this tax is justified. The only principle on which it can be justified is that if an owner makes a profit out of his land, the profit may be attributed in part to the action of the community. Then the State may come in and take a part of that profit. I am not arguing that that is wrong. Let us assume that it is right. If that is right, surely it carries the co-relative principle that if a man, having dealt with his land, makes a dead loss, he should not be called upon to pay to the community. If that be so, I say that the whole object of this Clause is to carry out that principle, namely, that if a man does make a loss he should not be called upon to pay to the State. The hon. Gentleman quoted Mr. Wood, the representative of the building societies, as saying that the Government was not carrying out the pledge of the Chancellor of the Exchequer. What I understood him to say was that Mr. Wood does not think that the promise made to the building societies by the Chancellor of the Exchequer in the interview has been fully carried out in the Clause put on the Paper.
§ Mr. CHARLES ROBERTS
I said exactly the opposite. I said that the Building Societies Association were asking for something less than the Amendment of the Noble Lord. They were asking something very much more restricted. They did not claim that as being the result of the pledge given to them. They were asking for it on its merits.
§ Mr. BUTCHER
I admit that I misunderstood the hon. Gentleman. I understood him to say that the Clause put on the Paper by the Government did not meet the views of the friendly societies.
§ Mr. CHARLES ROBERTS
On the contrary, what I said was that that Clause which has already been moved by the Financial Secretary to the Treasury and carried, was a concession giving effect to a definite pledge made and accepted as such. We claimed a pledge there, and we got it, but in the case of the other Clause moved by the Noble Lord, we do not say that there was a pledge.
§ Mr. BUTCHER
I did the hon. Gentleman an injustice in supposing him to be the friend of friendly societies, for in my opinion they have been exceedingly badly treated. I think that neither the owners of land unconnected with friendly societies, nor friendly societies themselves, could possibly have understood by this statement of the Chancellor of the Exchequer anything else, except what has already been put forward, namely, that when property is bought for or mortgaged for £2,000 and comes down in 1909 to £1,000, and then goes up again to £1,500, the owner of the land would naturally say, "I ought not to pay the tax when the result of the whole transaction has been to me a loss." If friendly societies think it reasonable to pay the tax under those cirsumstances, all I say is that I entirely differ, and I would recommend the friendly societies to have a better advocate, or someone who has got common sense. The Solicitor-General has endeavoured to explain away this pledge by saying that when the Chancellor of the Exchequer spoke of a man buying property he meant buying site value. We can believe a good deal, but with respect to the words, "supposing a man bought property for £2,000 and there is a slump of property in the neighbourhood, and it goes down to £1,000," are we really to think that he meant site value? Did anyone ever buy site value, or will anyone ever do so? Is it not absurd to tell us that when the Chan- 1434 cellor of the Exchequer talked of buying property for £2,000 twenty years ago he meant site value? I venture to ask whether, when the right hon. Gentleman talked of a slump of property in the neighbourhood, he meant us to understand that it was a slump in site values—a slump in something that is never bought or sold. I think any reasonable man can only put the meaning on the words which we put on them, namely, that he meant land plus houses. That is supported by what Mr. Wood said. Mr. Wood understood it was site value and houses. He said, speaking for the friendly societies, that they had nearly 8,000 mortgages, 90 per cent of them for sums not exceeding £500. He further stated that they had not a single mortgage on land alone. All their mortgages were on land plus buildings. Therefore, Mr. Wood was not concerned with site value. He was concerned with the property on which the building societies had mortgages, namely, land plus houses. Therefore, the right hon. Gentleman could not mean site value without houses. I appeal once more to the Government whether they cannot really give effect to the plain commonsense English words of this pledge. We say that this Clause has for its object to carry out the pledge of the Chancellor of the Exchequer, and to ensure that when a man makes a loss on a transaction he should not be called upon to pay just as if he had made a profit.
§ Sir RUFUS ISAACS
I rise to appeal to the House to conclude the discussion on this Clause. I am only suggesting that we have had this matter discussed before on other Amendments to a great extent. I would suggest to the House that we should get on from this to one of the later clauses in order that we may make further progress to-night. I only make this appeal for the convenience of the House.
§ Mr. WALTER LONG
I take it that the Attorney-General means to come to a conclusion on the Amendment which we are now discussing. I share the right hon. Gentleman's views. I think that working as we are, under a procedure that limits the time of our discussion, we should, so far as we can, apportion the time at our disposal with the most reasonable consideration as to the value of the subjects we are discussing. But I must remind the learned Attorney-General that earlier in the evening, when an effort was made to limit our discussion and get on to other business, we did not receive from the bench 1435 opposite the support and assistance we might reasonably have expected, and consequently their appeals do not come with a very good grace. At the same time I am bound to say, in the interests of those who are criticising this measure and wish to discuss more questions than one, that I do not see that we ought to object to the Attorney-General's appeal. But I hope he will remember that if these appeals are
§ to be made with success to the Opposition we are entitled to expect that when efforts are made to curtail debate to give us a reasonable opportunity for discussing other questions we shall receive better treatment from the Government than we have received up to the present time.
§ Question put, "That this Clause be read a second time."
§ The House divided: Ayes, 133; Noes, 237.